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Abstract

The small business community is a diverse component of the national economy and if very often the leader of developing new technology, products and services. Traditionally, small businesses do not raise capital in the conventional public markets; rather, they generally receive their capital from the venture capital industry. Once a venture capital company becomes publicly held or reaches a certain size, however, it becomes subject to detailed regulation under the Investment Company Act of 1940. The venture capital industry has consistently maintained that it cannot operate and function efficiently under the 1940 Act, and the result has been a lack of growth of the venture capital industry. In order to help stimulate the growth and creation of the venture capital industry and thus increase the flow of capital to small businesses, Congress has enacted the Small Business Investment Incentive Act of 1980. Part II of this Comment will discuss the impact of the small business community upon the national economy and the method by which such small companies are usually financed. Part III with examine the negative effects which the Investment Company Act of 1940 has had upon venture capital companies in the form of a decrease in the flow of capital to the small business community. The focal point of Part III will be upon the application of section 17 to venture capital companies. Finally Part IV will explore the basic framework underlying the 1980 Act and how it attempts to alleviate the regulatory burdens under section 17 of the 1940 Act.

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